Current Developments in Cost Accounting and the Dynamics of Economic Calculation

Volume 3, No. 2 (Summer 2000)

The problem of cost is the cornerstone of economic calculation. Entrepreneurs act upon the cost implications of their decisions and depend on cost data that represent the actual pattern of resource consumption. These theoretical generalizations are essential; However, they do not elucidate the complexity of cost assignment and how cost accounting is driven to change when cost structures shift and operating segments multiply. Neither do they provide concrete illustrations of how actual decisions are influenced by the available cost information. Cost determinations, whether accurate or not, have their say about the way resources are actually directed in our economy by myriad companies like Whirlpool and Carrier. The need for improved output from cost accounting is a result of changing market conditions. More accurate costing and strategic cost management are now required and made available through advances in information technology. More costs are indirect and not unit-based—that is, more costs are fixed and tied to resources bought in large chunks of serviceability. More sophisticated cost analysis is needed to "slice and dice" cost data across diverse segments or objects. By examining fundamentally new approaches to cost accounting, we see the operation of competitive market forces upon the quality of economic calculation itself. A critical facet of Austrian analysis is elucidated and clarified, showing that economic calculation is not perfunctory or static.